The sentiment at ALIS was more reserved than in the past. Projections for RevPAR, interest rates, and transaction volume are awfully similar to what we saw in 2024. The recent election brought optimism regarding economic and labor policies, but it brought some uncertainty around immigration and the government sector. Here are Aperture’s key takeaways from this year's meeting of hotel owners, investors, and operators.
1. Illegal immigration crackdown will impact contract labor companies. Much has changed since Bill Clinton signed the Illegal Immigration Reform and Immigration Responsibility Act of 1996, followed by the launch of E-Verify in 1997. As a result, most employers aren’t nearly so exposed as we were during the last crackdown in the late 90’s. But there’s one caveat: Hotels that are heavily reliant on contract labor may face outsized risk. We’re seeing early signals of disruption occur within the contract labor market due to those companies being traditionally less compliant with immigrant employment. In other labor news, the election brought general optimism about labor department policy changes and joint employer stance. It’s believed that H1B and J1 will stay in place.
2. RevPAR growth will be largely driven by the group segment. The return of group business is lifting upscale and large property performance, outpacing the modest growth of corporate transient business. 2024 group demand grew 3% vs. 2023, whereas 2024 Transient ADR fell flat or declined in 48% of the Top 25 markets (12 of 25) tracked by STR. Meanwhile, 2024 group ADR grew in 88% of markets.
3. Customers want “experience." Bifurcation by price class persists. Demand and ADR for economy and midscale hotels continue to decline, even as higher price classes outperform for a second straight year. Economy and midscale declined despite the tremendous Q4 lift realized from hurricanes impact across North Carolina, Florida, and Georgia. The upper upscale price tier leads the way in occupancy and ADR growth as travelers seek more premium experiences.
4. Houston! Whose idea was it to renovate convention centers in Dallas, Austin, and Fort Worth all at the same time? Well, Houston says “thank you” as their 2024 RevPAR grew an astonishing +15.1%, leading the nation by far -- and there’s continued growth ahead.
5. 2024 transaction volume was down (again). 2024 hotel transaction volume finished at the lowest level since 2020.
6. Loan originations soared, even as loan delinquencies increased slightly vs. 2023. The previously predicted tsunami of transactions under pressure of maturing debt seems to have been muted by a proliferation of one-year, high-interest bridge loans and CMBS being widely available. Lender de-risking strategies have resulted in average loan-to-value declining from ~80% in 2021 to ~60% in 2024.
7. Actualized new supply hasn’t changed in over three years. STR reports 1% in construction, 4% in final planning, 9% in planning, and 6% under contract. However, 2024 finished with just 0.5% new supply growth actualized vs. the long-term trend of 1.6%. We’ll see if all these projects actually come to fruition.
8. The Fed’s interest rate change resulted in no meaningful change in hotel values. The long-anticipated -50 bps Fall ‘24 reduction was already built into pricing. This week’s decision to hold rates flat may help sellers become more realistic in their pricing expectations.
9. ADR growth is lagging inflation. Real rate growth has fallen behind in the South and West, while the Northeast and Midwest are keeping up with CPI. But let’s not forget that these growth markets are the same ones which were so far behind in recovery from the pandemic. Managers must be increasingly creative with expense controls.
10. Beat the odds with the right management company. Is your management company on top of these trends? Every market has a unique thumbprint. Having the right management company can bring a fresh approach to market share growth strategies, impact expense controls, and uncover hidden business potential that others may miss.
Let us know how Aperture Hotels can help you!
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